Amazon announces it will no longer enforce its price-parity clause

According to a press release issued by Germany’s Federal Cartel Office (Bundeskartellamt) on 27 August 2013, Internet-marketplace operator Amazon has stated that it will no longer adhere to its controversial antitrust clause concerning price parity.

Amazon Services Europe SARL had previously changed its terms and conditions for Amazon Marketplace traders. As a result of the new clause, which came into effect on 31 March 2010, traders were prohibited from offering their products at prices higher than those at which they sold the same products through other Internet sales channels. This ban on charging lower e-commerce prices than on Amazon Marketplace applied not only to other Internet marketplaces (e.g. eBay), but also to the sale of goods through the retailers’ own online shops. Ever since, Amazon has demanded price parity from its Marketplace traders.

It would now seem, however, that Amazon has bowed to the pressure of an impending antitrust investigation. On 20 February 2013, the Federal Cartel Office (Bundeskartellamt) announced that it would survey 2,400 Amazon traders in order to examine the impact of the price-parity clause on free competition and to investigate the clause’s compliance with antitrust law. The Federal Cartel Office found indications that the price-parity clause was illegally infringing on the pricing freedom of traders. Pricing freedom in Germany is guaranteed in Section 1 of the Federal Antitrust Law (GWB) and by European antitrust law (Treaty on the Functioning of the European Union, Art 101, 1 (a)); Block Exemption Regulation respecting vertical agreements, Art 4 (a). Particularly in so-called vertical distribution systems where the parties are operating at multiple levels of commerce (e.g. as both manufacturer and distributor), heavy fines prohibit them from restricting the ability of retailers to set their own selling prices.

The Federal Cartel Office further asserted that price-parity clauses can improperly limit competition between the various Internet marketplaces. It noted that in some cases it could be particularly difficult for start-up Internet marketplaces to compete with Amazon, the market leader. This concern certainly deserves attention. The price-parity clause makes it less attractive for Amazon traders to pass on to consumers any lower commissions levied by other marketplace operators competing against Amazon. If, due to the lower sales-commission fees of competing marketplaces, a trader were to change his selling prices there, it would also, due to the Amazon price-parity clause, be obliged to adapt or reduce accordingly its selling prices in the Amazon Marketplace. The greater a trader’s volume of sales through Amazon, the less attractive it is for that trader to set lower prices on other Internet marketplaces. Hence, a trader’s price on Amazon becomes its de facto minimum price for its entire online sales activities. Given that Amazon.de, due to its above-average sales commission fees, is likely among the most expensive sales channel on the Internet for German consumers, the trader’s asking price there will likely also consistently be its highest price. The minimum price available on Amazon thus threatens to become a uniform price for all Internet-based sales. Price competitiveness among the marketplace platforms is thereby significantly impaired by the price-parity clause.

Further, the antitrust concerns of the Federal Cartel Office are in line with lower-court rulings with respect to comparable most-favoured customer clauses. The District Court of Munich (LG München I), for example, already found massive incursions into free competition by the introduction of a price-parity measure by Amazon (Az.: 37 O 7636/10). Also, in a ruling on 15 February 2012 (VI W (Kart) 1/12), the Dusseldorf Higher Regional Court found that a so-called “best-price guarantee” of HRS, an online hotel reservation portal, violated Section 1 of the Federal Antitrust Law (GWB). HRS had obliged its hotel partners in cooperative agreements to set their room rates on the HRS reservation platform at least as low as on other hotel booking and travel platforms. According to the Higher Regional Court of Dusseldorf, the best-price guarantee implemented by HRS also constitutes an improper most-favoured customer clause in that it impaired intra-brand price competition in the sale of hotel bookings and inadmissibly restricted the pricing freedom of hotel partners. The Higher Regional Court of Dusseldorf also shared the aforementioned concerns of the Federal Cartel Office with respect to impairing competition between online hotel-booking portals. The Federal Cartel Office is currently investigating HRS’s best-price clause. It remains to be seen whether HRS, like Amazon, will refrain from enforcing its best-price clause, in order to avoid a ruling by the Federal Cartel Office.